Market Lab Report - Premarket Pulse 7/8/16

Today's jobs report came in notably strong with 287,000 new jobs being added in June, marking the biggest increase since last fall after a soft patch earlier this year. Analysts had predicted an increase of 170,000 nonfarm jobs, including about 35,000 Verizon employees returning to work after a lengthy strike. The unemployment rate rose to 4.9% from 4.7%.

The prior jobs report came in notably weak yet the market managed to finish in the upper half of its trading range after gapping lower at the open on Friday June 3. The market then sputtered higher over the next 3 trading days before rolling over.

Jobs reports for 2016

The jobs report is posted before the market opens which usually causes a pre-market response. Below, we show where the S&P 500 1x ETF SPY, which faithfully tracks the S&P 500 index, opened and closed on the day the jobs report was published.

2/5/16 The US unemployment rate fell to an eight-year low in January as the economy created fewer jobs than expected.SPY open -0.3%, close -1.9%

3/4/16 The US economy added many more jobs than expected last month, but wage growth disappointed.SPY open -0.56%, close 0.33%

4/1/16 March was another strong month for the US labor market, as jobs and wage growth increased more than expected.SPY open -0.57%, close 0.69%

5/6/16 The US economy added 160,000 jobs in April, fewer than expected, as the unemployment rate held steady at 5%.SPY open -0.47%, close 0.36%

6/3/16 The US created just 38,000 new jobs in May and nearly half a million people dropped out of the labor force, raising doubts about the strength of the economy and possibly forcing the Federal Reserve to scuttle plans to raise interest rates this summer. The increase in hiring was the smallest since the fall of 2010.SPY open -0.3%, close -0.29%

As one can see, the SPY opened lower in every case, then moved higher with the exception of 2/5/16.

With today's report, SPY opened about 0.7% higher as futures have rallied on the news about 0.7% at the time of this writing. This would put the S&P 500 just 1% under all-time highs thus is coming up against resistance as it has many times prior.

Ultimately, a weak report is more fodder for the Federal Reserve to leave rates unchanged or may spur them to lower rates at some point, while a strong report is one manipulated data point that allows the Fed to jawbone that rates may be hiked sooner than later. In reality, the global situation remains dire so the Fed has no choice but to leave rates on hold or reverse their prior hike should conditions worsen.

While the US remains the tallest standing midget, the world is more connected globally than ever before, so Fed Chair Yellen has said that the global situation, unless it improves, will likely prevent the Fed from hiking rates. She has also said she is not opposed to US interest rates going negative if conditions require it at some point.

The market seems to know this, so with easy money conditions in place, QE-based capital finds its way into hard assets such as US stocks which pushes the market reluctantly higher.

Nevertheless, with the elevated levels of volatility that has characterized much of 2016, both short and long positions remain viable depending on the stock and its price/volume formation. We continue to scour the universe of stocks for any high probability short or long set ups.

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